IC Markets Europe Fundamental Forecast | 18 July 2023
What happened in the Asia session?
The Reserve Bank of Australia (RBA) released the minutes of its monetary policy meeting that took place on 4th July. The minutes highlighted a hawkish tone as the board is prepared to reduce inflation. Although domestic inflation has eased, service inflation is still high while the labour market remains extremely tight. This caused the Aussie dollar to rise towards 0.6840 following the release of the minutes.
What does it mean for the Europe & US sessions?
With hardly any economic data releases during the Europe session, it could be a quiet afternoon with most currency pairs trading within a tight range. Inflation data out of Canada along with US retail sales and industrial production figures later today could provide markets a jolt.
The Dollar Index (DXY)
Key news events today
Retail Sales (12:30 pm GMT)
Industrial Production (1:15 pm GMT)
What can we expect from DXY today?
Upcoming retail sales and industrial production figures will provide further insight into the state of consumer spending and manufacturing activity in the US. The latest ISM manufacturing PMI report indicated activity remains in contraction territory and we could see this reflected in another weak print for industrial production.
Central Bank Notes:
- The federal funds rate target range will be 5 to 5-1/4 per cent.
- The Committee is strongly committed to returning inflation to its 2% target.
- The Committee will adjust monetary policy if risks emerge that could hinder achieving its goals.
- Various factors will be considered, including labour market conditions, inflation pressures, inflation expectations, and international and financial developments.
- Next meeting is on 26 July 2023
Next 24 Hours Bias
Medium Bearish
Gold (XAU)
Key news events today
No major news events.
What can we expect from Gold today?
Gold is making another attempt to break above $1,965/oz this morning as the sell-off in the US dollar continues. Could this precious metal finally climb above this recent resistance level and push towards the $1,980-region?
Next 24 Hours Bias
Medium Bullish
The Australian Dollar (AUD)
Key news events today
Monetary Policy Meeting Minutes (1:30 am GMT)
What can we expect from AUD today?
The RBA released the minutes of its monetary policy meeting that took place on 4th July. The minutes highlighted a hawkish tone as the board is prepared to reduce inflation. Although domestic inflation has eased, service inflation is still high while the labour market remains extremely tight.
Central Bank Notes:
- The RBA increased the cash rate target by 25 basis points to 4.10%.
- Inflation in Australia has passed its peak but remains high at 7% and needs to return to the target range.
- Further tightening of monetary policy may be necessary.
- Next meeting on 1 August 2023
Next 24 Hours Bias
Medium Bullish
The Kiwi Dollar (NZD)
Key news events today
CPI (10:45 pm GMT)
What can we expect from NZD today?
Inflation in New Zealand has been retreating quite sharply and the latest reading is likely to show this trend continuing. The Kiwi found support around 0.6320 yesterday and is pushing higher this morning but could run out of steam as inflation data hits the news wires in the latter part of the day.
Central Bank Notes:
- The Monetary Policy Committee held the OCR steady at 5.50%
- The Committee believes that interest rates at a restrictive level for some time will bring inflation back within the annualized target range of 1% to 3% while supporting maximum sustainable employment
- The Committee reached consensus to leave the OCR unchanged at 5.50%
- Interest rates must remain restrictive to ensure inflation returns to the target range while supporting maximum sustainable employment
- Next meeting is on 16 August 2023
Next 24 Hours Bias
Weak Bullish
The Japanese Yen (JPY)
Key news events today
No major news events.
What can we expect from JPY today?
The Japanese yen has been trading around the 139-level and could fall towards 138 on the back of the ongoing US dollar weakness as the day progresses.
Central Bank Notes:
- The bank will continue with QQE with Yield Curve Control to achieve the price stability target of 2%
- The Bank of Japan decided on the following measures:
- Yield curve control: Negative interest rate of -0.1% on policy-rate balances and purchase of Japanese government bonds to keep 10-year JGB yields around 0%.
- Inflation is expected to decelerate temporarily but is projected to accelerate moderately later, supported by improvements in the output gap and inflation expectations.
- Japan’s economy is expected to recover gradually
- Next meeting is on 28 July 2023
Next 24 Hours Bias
Medium Bearish
The Euro (EUR)
Key news events today
No major news events.
What can we expect from EUR today?
The Euro briefly rised above 1.1250 early this morning and could remain elevated for most parts of today. It is a relatively quiet calendar for the Eurozone and the flows into the DXY will dictate the direction for the Euro – it is currently heading towards 1.1260 during European pre-market hours.
Central Bank Notes:
- The ECB raised the three key interest rates by 25 basis points.
- Economic growth projections have been slightly lowered.
- The Governing Council will ensure interest rates are sufficiently restrictive to achieve the inflation target and keep them at those levels as long as needed.
- Rate decisions will be data-dependent, considering inflation outlook, economic data, underlying inflation dynamics, and monetary policy transmission strength.
- Next meeting on 27 July 2023
Next 24 Hours Bias
Medium Bullish
The Swiss Franc (CHF)
Key news events today
No major news events.
What can we expect from CHF today?
Just like the Japanese yen, the Swiss franc also saw heavy inflows over the past few days. This currency pair is trading around 0.8600 and is likely to trade within a narrow range today.
Central Bank Notes:
- SNB has tightened its monetary policy further, raising the SNB policy rate by 0.25 percentage points to 1.75%.
- The new forecast predicts average annual inflation at 2.2% for 2023 and 2024 and 2.1% for 2025. Without the rate increase, the estimates would be even higher.
- SNB predicts modest growth for the rest of the year due to subdued foreign demand, loss of purchasing power from inflation, and stricter financial conditions. The GDP is projected to grow around 1% this year.
- Next meeting on 21 September 2023.
Next 24 Hours Bias
Weak Bearish
The Pound (GBP)
Key news events today
No major news events.
What can we expect from GBP today?
With no economic data releases in the UK today, the direction for the pound will depend once again on the demand or rather, the lack of demand for the US dollar. This pair is currently trading around 1.3090 and could break above 1.3100 today.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) voted to increase the Bank Rate by 0.5 percentage points to 5%.
- Two members preferred to maintain the Bank Rate at 4.5%.
- CPI inflation is expected to fall significantly due to developments in energy prices.
- The updated projections show that CPI inflation is expected to decline slightly above 1% at the two and three-year horizons, below the 2% target.
- Next meeting on 3 August 2023
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
CPI (12:30 pm GMT)
IPPI & RMPI (12:30 pm GMT)
What can we expect from CAD today?
Just like most other developed economies, inflationary pressures in Canada have also been moderating steadily. The latest readings should post a similar trend, especially for the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI).
Central Bank Notes:
- The Bank of Canada increased its target for the overnight rate to 4.75%.
- Canada’s economy was more substantial than expected in the first quarter of 2023, with GDP growth of 3.1%.
- The Bank expects CPI inflation to ease to around 3% in the summer, but concerns have increased about inflation staying above the 2% target.
- Next meeting on 6 September 2023
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
API Weekly Crude Oil Stock (8:30 pm GMT)
What can we expect from Oil today?
Both the API and EIA Inventory levels grew last week and another build in stockpile levels would only add to further downward pressure on crude oil prices. In addition, yesterday’s China GDP data disappointed market expectations and drove WTI oil under the $75 per barrel region. The near-term outlook for crude looks bleak and is showing in the recent pullback in prices.
Next 24 Hours Bias
Weak Bullish
